FORMS OF OWNERSHIPBUSINESS

DEFINITION OF THE FORMS OF OWNERSHIP?

the relation of an owner to the thing possessed; possession with the right to transfer possession to

others the state or fact of being an

owner.

THE FORMS OF OWNERSHIP

SOLE TRADERPARTNERSHIPCLOSE CORPORATIONCOMPANIES (PRIVATE AND PUBLIC)

SOLE TRADER• A sole proprietorship, also known as the sole trader or simply a

proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business.

• The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. It is a "sole" proprietorship in contrast with partnerships. A sole proprietor may use a trade name or business name other than his or her legal name.

ADVANTAGES AND DISADVANTAGES

ADVANTAGES• It is easy to organize this business. Only small amounts of

capital are needed to start and run a business.

• It permits a high degree of flexibility to the owner since he/she is the boss of the business establishment.

• Due to the owner's unlimited liability, some creditors are more willing to extend credit.

• The owner receives all the profit of the business.

DISADVANTAGES• Has limited resources. Banks are reluctant to grant loans to proprietorship

considering its small assets and high mortality rate.

• Unlimited liability for business debts. The single owner is responsible for paying all debts and damages of their business.

• If the firm fails, creditors may force the sale of the proprietor's personal property as well as their business property to satisfy their claim.

ONE MAN

PARTNERSHIP• A business organization in which two or more individuals manage

and operate the business. Both owners are equally and personally liable for the debts from the business.

• There are two types of partners. General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances. The liability of limited partners is limited to their investment in the partnership.

ADVANTAGES AND DISADVANTAGES

ADVANTAGES• Partnerships are relatively easy to establish.

• With more than one owner, the ability to raise funds may be increased, both because two or more partners may be able to contribute more funds and because their borrowing capacity may be greater.

• Prospective employees may be attracted to the business if given the incentive to become a partner.

DISADVANTAGES• Business partners are jointly and individually liable for the actions of the other

partners.• Profits must be shared with others. You have to decide on how you value each other’s time and skills. What happens if one partner can put in less time due to personal circumstances?

• Since decisions are shared, disagreements can occur. A partnership is for the long term, and expectations and situations can change, which can lead to dramatic and traumatic split ups.

• The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

• A partnership usually has limitations that keep it from becoming a large business.

2-20 PARTNERS

CLOSE CORPORATION

• A corporation is a separate legal entity that has been incorporated either directly through legislation or through a registration process established by law. Incorporated entities have legal rights and liabilities that are distinct from their employees and shareholders, and may conduct business as either a profit-seeking business or not-for-profit business.

ADVANTAGES AND DISADVANTAGES

ADVANTAGES• Registering a Close Corporation (CC) is a simple and relatively affordable option. It

is not expensive and there are only a few regulations.

• A CC does not have any legal complications that a company has. For example, a CC is not required to have annual financial statements audited and a CC is not required to hold annual general meetings. This makes running a CC easier than a company.

• The CC is regarded as a legal entity/person, this is an advantage because it means that the continuity of a CC is not linked to the status and life of the members.

• Income distributed to the members of the CC is exempted from normal income tax.

DISADVANTAGES• Membership is restricted to ten and the capital may not be enough to

expand.

• A member of a close corporation can be held personally liable for a breach of fiduciary duty and for losses suffered by the close corporation as a result of the failure on the part of the member to act with skill and care.

• A close corporation cannot be sold to a company; it must first be converted to a company.

1-10 MEMBERS• The name of the business

Must end with a CC word in

The end.

COMPANIESUnder companies we have two which is the PUBLIC(Ltd) and PRIVATE (Pty Ltd)company

Private- A private company is a separate legal entity distinct from its shareholders.

Public- shares can be sold to public and anyone can join. 7-indefinite number of shareholders.

ADVANTAGES AND DISADVANTAGES OF PUBLIC COMPANY

ADVANTAGES• Publicly traded companies are able to raise funds and capital

through the sale (in the primary or secondary market) of their securities, whether debt or equity. This is the reason publicly traded corporations are important: prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. The profit on stock or bonds is gained in form of dividend or capital gain to the holders of such securities.

DISADVANTAGESPrivately held companies have several advantages over publicly traded companies. A privately held company has no requirement to publicly disclose much, if any, financial information; such information could be useful to competitors

ADVANTAGES AND DISADVANTAGES OF PRIVATGE COMPANY

ADVANTAGES• Limited Liability: It means that if the company experience financial distress because

of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.

• Continuity of existence: business not affected by the status of the owner.

• Minimum number of shareholders need to start the business are only2.

• More capital can be raised as the maximum number of shareholders allowed is 50.

DISADVANTAGES• Growth may be limited because maximum shareholders allowed are only 50.

• The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of other shareholders

LIST OF REFERENCES• ownership. (n.d.). © Encyclopedia Britannica, Inc.. Retrieved March 09,

2014, from Dictionary.com website: http://dictionary.reference.com/browse/ownership

• Family Business Sourcebook, Aronoff, Astrachan, and Ward

• Pettet, B. G. (2005). Company Law. Pearson Education. p. 151. "Reading the above, makes it possible to forget that the shareholders are the owners of the company.“

• Loewen, Jacoline (2008). Money Magnet: Attract Investors to Your Business: John Wiley & Sons. ISBN 978-0-470-15575-2.